Investing in Web3, DAOs, and the Metaverse can feel overwhelming. There is so much new information.
But it doesn’t have to be overwhelming; we’ll show you how.
Many of us have heard the terms Cryptocurrency, DAO, DeFi, NFT, and Blockchain tossed about in conversation and strung throughout headlines.
But what exactly do these terms mean, and how do we effectively educate ourselves on these strange new investment opportunities?
We’re going to dive into the different aspects of the Web3 universe and walk through several simple steps you can take towards becoming a part of this fascinating new world.
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A Brief History of the World Wide Web
What came before the Web3 we are hearing so much about? It all began with Web1.0 back in the ‘90s and early 2000s. This era introduced us to email, static websites, domain names, online purchasing, and search engines.
In the early days of email, most people were still collecting and pushing paper for literally everything. Briefcases were stuffed full of articles and paperwork, and payphones were vital for communication.
It took years for email to catch on. Some of us might have had the foresight to purchase a domain name, but we really didn’t know how Web 1.0 would evolve.
While email and static websites ruled the world of Web1.0, content creation was the king of Web2.0. Web2.0 entered our lives around 2005, and it was all about interaction and connection. Building relationships with one another—between consumers & customers—became the focal point.
We launched ourselves into the worlds of Facebook, Instagram, Twitter, and YouTube. The iPhone, podcasting, the tracking of marketing ads, and the focus on products and content creation permeated Web2.0. All of these workings, however, were—and are—run under centralized authorities.
Enter Web3.0!
It’s still unfolding, but the main theme behind Web3.0 is creation and community.
The difference between Web2.0 and Web3.0 is the transition from a centralized authority to a decentralized system of online communication, trading, and governance.
The financial rewards of Web3 systems are available to all contributors, and financial transactions are completed on the blockchain using smart contracts. More on those contracts in a bit.
Understanding Decentralized Autonomous Organizations or “DAOs”
The decentralized nature of Web3 is made possible with DAOs. DAOs are digitally native communities centered around a shared mission. They usually begin with a small group of individuals who share a common interest or goal. Anyone can create a DAO, and it only takes about five minutes to launch one. DAOs can have any type of mission at their core. Here are a few types of DAOs:
- DeFi (or protocol DAOs) that create financial contracts through the blockchain
- DAO operating systems (such as Aragon or Colony) that offer a framework for people to create their DAO
- Investment DAOs
- Collector DAOs, which can be used to curate collections of digital items such as NFTs
- Social DAOs
There was even a DAO with the mission to purchase an NBA team.
So how are DAOs made? A popular starting place is with a DAO operating system, such as Aragon or Colony, which provides creators with the tools they need to be successful. These tools include domain names (similar to a website domain), governance tokens, the ability to sell tokens, and a trustworthy reputation to back them up. Each DAO is made up of a number of systems. These include:
- Treasury Management
- Voting
- Governance
- Contribution Management
These various systems are like Lego blocks that build up to create a singular organization.
There are no central authorities in these organizational communities. Rather, they are member-controlled, and decisions are made based on popular vote. Each DAO has encoded governance or set of rules for how they will operate. Only token-holders are allowed to vote and participate in the workings and decisions of the community.
The two largest DAOs are Ethereum Name Service (ENS) and Uniswap. Similar to GoDaddy or WordPress, ENS allows you to claim a sort of blockchain domain name. Uniswap is a decentralized crypto trading protocol. It’s not a public crypto brokerage like Coinbase but rather a protocol wherein token-holders can trade crypto across a variety of wallets and apps.
Demystifying the Cost of Ethereum Transactions
Beginning your journey into Web3 and cryptocurrency can be daunting. Sometimes, it’s unclear where to begin or know everything you will need in order to streamline the investment and reinvestment process. Sometimes there are hidden fees, and the maze of apps and accounts can become confusing and frustrating. There are steps you can take, however, to simplify the process.
Consider having a cryptocurrency wallet as a sort of home base. You can access your wallet via your phone or computer and send your crypto to DAOs or websites.
When navigating fees, it can be surprising how high some of them appear. Some of the highest fees at present are on the Ethereum network.
Most DAOs and NFTs run on Ethereum. The blockchain (the system by which Ethereum and cryptocurrencies are traded and moved) can get crowded and congested with activity.
Gas is the term used for the fees on the Ethereum network. The gas varies based on demand and the computational effort to run the Ethereum network. Verifying transactions in the blockchain requires time and “miners”, so there is a limit to the capacity of the blockchain network at any given time.
Thankfully, Ethereum is trying to make its fees more straightforward and less surprising. There is always a base fee and then on top of that there is a priority fee or a tip. The latter amount depends on how crowded the blockchain is.
Interestingly, the base fee isn’t actually given to anyone. No one is receiving it. It’s burned in order to facilitate the transaction, meaning it’s sent to a crypto address with no private key—thus rendering it useless. Because of the massive burn rate required in order to enact transactions, the amount of Ether available in the network is growing by only 1.8% annually.
So what’s the solution? Thankfully, there are options other than participating directly with Ethereum. Ethereum-compatible blockchain networks, such as Polygon, allow traders to bypass the Ethereum main level.
This may seem confusing, but you do this every day with your bank. We don’t exchange money directly through the Federal Reserve. Instead, we use banks and payment networks to exchange money.
Now, in order to do this, we first have to put money in the bank or pay a credit card fee in order to obtain the payment method. It’s the same with the cryptocurrency world. You have to pay upfront in order to participate in the system.
The Unique World of Metaverse Living
One of the stranger parts of the Web3 world is the metaverse. Much like Second Life in Web2.0, you can participate in the metaverse through the purchase of affiliated coins. Decentraland is an example of a metaverse coin.
Within the metaverse, you can purchase digital goods, land, and explore virtual worlds. These augmented realities strongly appeal to gamers, but even for those of us who don’t game, it offers a fascinating investment opportunity.
The Web3 universe is attracting incredible talent, and it’s not just investors who are interested in the opportunities it provides. Authors, artists, gamers, businesses, and governments are all delving into this new world.
As you continue to research and learn, you’ll find that some cryptocurrencies and DAOs spark your interest more than others, and it will all begin to make sense the more you explore.
What are NFTs and Why are They so Popular?
You’ve probably heard of NFTs and how they are taking the art world by storm. Like metaverse living, NFTs offer us digital representations of things we enjoy in our everyday life such as artwork, GIFs, video games, collectibles, and even tweets.
They can be created, bought, and sold online. But what exactly are NFTs and should you be collecting them as part of your crypto investments?
An NFT is a traceable certificate of authenticity that traces and encodes the history of the digital file it’s linked to. This certificate is encoded into the blockchain. The blockchain, remember, is a ledger of transactions for the cryptocurrency world.
It’s helpful to think of the NFT itself as the coded record of the digital file we see and enjoy.
In other words, an NFT is an encrypted documentation stating who owns a particular digital art file. The digital art itself can be replicated by anyone, including the artist.
What does this mean for artists and NFT creators? Well, each NFT is unique. NFT stands for “non-fungible token,” which means that it cannot be divided. Only one person can be the official owner of an NFT at any given time.
Where things get murky for NFTs is the ability to copy the digital work. These copies, however, don’t represent the authorized version specified in the NFT smart contract encoded on the blockchain.
Value accrues to NFTs because they represent authentic ownership of the digital work. The value is being the one true owner of the authorized version even if there are copies of the digital art.
Creating and selling NFTs allows artists to distribute their work worldwide. They aren’t limited to the curation of a museum or the confines of an expensive gallery.
An even sweeter side for NFT artists is that they can create their NFT in such a way that they gain royalties every time the NFT is sold—even after their ownership of the piece is long gone.
How popular are NFTs, exactly?
They are, after all, purely digital. They aren’t tokenizations of physical items quite yet.
It’s rather shocking how much people are paying for NFTs. According to Forbes, “A staggering $174 million has been spent on NFTs since November 2017.”
A new piece of crypto art is being minted every five seconds, and some sell at astounding prices. An NFT minter named Beeple sold a piece of digital art for $69 million.
But why? Why the craze over NFTs, and are they really a valid investment?
The Highs and Lows of NFTs
Many NFT enthusiasts cite the security surrounding crypto art, the ability for artists to share their work worldwide, and the status that comes with owning original NFTs.
NFTs, then, are valuable because people say they are. Robyn Conti and John Schmidt at Forbes explain it this way,
“…keep in mind, an NFT’s value is based entirely on what someone else is willing to pay for it. Therefore, demand will drive the price rather than fundamental, technical or economic indicators, which typically influence stock prices and at least generally form the basis for investor demand.”
It can be argued that NFTs are actually a form of speculation rather than investment. Investments—generally—have an objectively expected positive return. Speculations don’t.
Yes, the value of a speculated item—in this case, NFTs—can be sold for a higher price than what they were originally purchased for, but that return on investment isn’t always expected.
We don’t know yet if NFTs will hold their value or produce a positive return in the long run. You could purchase an NFT, and it could be worth millions in two years. Or it could be worth nothing.
One of the arguments for speculation in physical items is the work being bought and sold is intrinsically beautiful or meaningful to the beholder or owner. This is true of physical artwork.
For some, NFTs of artwork, books, recipes, LeBron James memories, video games, or collectibles are valuable. They hold great meaning and represent a form of status among their peers.
For others, NFTs will not hold any meaning or value and that’s where deciding to “invest” in them can turn into muddy waters.
As investors, we have to decide why we are investing and be responsible when it comes to what we are investing in.
With NFTs, we can certainly support the artists and minters who are creating these fascinating and thought-provoking pieces and collectibles. We shouldn’t, however, always expect a positive return as we would with other investments. The future is still uncertain.
Some argue that NFTs use too much energy to produce and that they are representations of incredible amounts of wasted resources.
Some of that is true.
NFTs are energy-intensive. Just like using Ethereum and Bitcoin is energy-intensive. Because NFTs are based on the Ethereum blockchain, they use the “gas” we discussed earlier and are verified using proof-of-work.
Almost anything we do, however, uses energy—including traditional forms of finance like online banking and credit cards. We just have to decide whether it’s worth it to us.
Justine Calma at The Verge expresses the environmental concern this way,
“What’s still up for debate is whether NFTs are significantly increasing emissions from Ethereum or if they’re just taking on responsibility for emissions that would have been generated by miners anyway.”
Some NFT artists are hopeful that there are solutions for how much energy is being used in the production of NFTs—and mining Ethereum and Bitcoin for that matter. One solution could be moving the Ethereum blockchain to proof-of-stake as opposed to proof-of-work.
Again, it all comes down to why you invest. What do you deem valuable and what do others deem valuable? What is the underlying cost of that value?
Are NFTs a Gimmick?
It’s hard to say whether NFTs will continue to hold their value in the near and long-term future. They are highly speculative, and their value is purely subjective.
That being said, they offer exciting possibilities for creators and metaverse enthusiasts.
NFTs are being lauded for their accessibility, their ability to spark thought and movement in culture, to memorialize moments in history, and even as fundraising tools for nonprofits and worthy causes.
Are NFTs proven investments? Not yet.
Are they tangible and practical? No.
Is there sufficient scarcity to back claims of future profit? Not currently.
Unlike bitcoin, which has a cap on how many will be mined, there isn’t a cap on how many NFTs can be minted. The jury is still out on whether they will hold their value.
If you do decide to collect NFTs, simply realize that earning a future profit is currently speculation.
Choose NFTs that hold meaning for you or that you find beautiful. Continue your research on how NFT minters are working to find more environmentally-friendly solutions.
NFTs are valuable because people say they are by purchasing them.
When investing and diversifying our portfolios, we should be considering investment opportunities that have a positive expected return, where there’s cash flow, and there’s income being generated.
Do NFTs offer that? It’s hard to say.
Being Patient with Your Blockchain Education
It’s easy to become overwhelmed with the complexity of the Web3 world. While there are some similarities between traditional financial systems and the trappings of cryptocurrency, there is so much that is new and fascinating.
It’s okay if you don’t understand everything about Web3, the metaverse, DAOs, and crypto. You don’t need to have all the answers before you can begin investing. Understanding will evolve with the time you spend researching and engaging with the Web3 communities.
The key is to involve yourself in the varying systems one step at a time. Consider the following options to get started:
- Listen to the podcast episode “How to Invest in Web3, DAOs, and the Metaverse” found at the end of this article.
- Listen to these additional podcast episodes on the topics of Bitcoin and how to make money with crypto investments:
- Purchase Ethereum or Bitcoin and hold it. Things are volatile right now, but the trajectory is more than promising. Web3 is being built as we speak. It’s a brand new world, and you can participate simply by purchasing coins.
- Join a DAO. Find one with a mission you care about. There are dozens of options, and they are open to anyone. If you don’t find one you like, consider launching one yourself.
- Continue learning. We invest in the Web3 universe with our time and our money. Opportunities continue to erupt in non-traditional and fascinating ways. Authors, for example, may find that they can sell and distribute their writing as NFTs. You may even find podcasts in the metaverse one day! We don’t know how it will all evolve, but the sky’s the limit.
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The key takeaway is that you don’t need to know everything right away. Pay attention to what is working and what’s not. Be patient with the volatility of this new world and be willing to learn as you go. It’s going to seem threatening to many because it challenges our normal way of life and how we operate organizationally. This is an entirely new financial system we get to watch being introduced to the entire world.
Be patient with yourself and invest in learning about it. It’s exciting and even fun to be on the leading edge of something so fascinating and world-changing.
The bottom line is this: don’t be intimidated. The Web3 and DAO world is worth pursuing and understanding. It takes time to learn. You’re not too late to the game—it’s all just beginning.
Emily Boulter is a professional writer with a B.A. in English & Writing from Regent University. With experience in show notes writing, grant writing, and business writing, she has a deep passion for helping others through her writing and non-profit initiatives. Emily lives in the Rocky Mountains of Colorado and can easily be found hiking, horseback riding, or reading in one of the local coffee shops.
David Stein is the founder of Money for the Rest of Us. Since 2014, he has produced and hosted the Money for the Rest of Us investing podcast. The podcast reaches tens of thousands of listeners per episode and has been nominated for ten Plutus Awards and won one. David also leads Money for the Rest of Us Plus, a premium investment education platform that provides professional-grade portfolio tools and training to over 1,000 individual investors. He is the author of Money for the Rest of Us: 10 Questions to Master Successful Investing, which was published by McGraw-Hill. Previously, David spent over a decade as an institutional investment advisor and portfolio manager. He was a managing partner at FEG Investment Advisors, a $15 billion investment advisory firm. At FEG, David served as Chief Investment Strategist and Chief Portfolio Strategist.
Podcast Episode 368: How to Invest in Web3, DAOs, and the Metaverse
What is Web 3.0 and how will it transform the world? How you can invest your time and money in decentralized autonomous organizations and other Web3 projects.
Topics covered include:
- What are Web 1.0, Web 2.0, and Web 3.0 and how do they differ
- What are decentralized autonomous organizations (DAOs)
- How DAOs operate and what are some examples
- How to register one’s Web 3.0 user name
- How the Ethereum network, a major part of Web3, is changing
- How to participate and invest in DAOs and other Web3 projects
Show Notes
Decentralized autonomous organizations (DAOs)—Ethereum
State of the DAOs #0 | Oct 6th, 2021 by BanklessDAO Writers Guild—BanklessDAO
Decentralized Autonomous Organizations;The New Coordination Frontier by Calvinme—Medium
Organization Legos: The State of DAO Tooling by Nichanan Kesonpat—Medium
What Is the Metaverse, Exactly? by Eric Ravenscraft—Wired
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Related Episodes
339: How To Make Money with BlockFi, Dai and the Evolving DeFi Ecosystem
335: Are NFTs Good Investments?
Transcript
Welcome to Money For the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I’m your host, David Stein. Today’s Episode, 368. It’s titled “How to Invest in Web3, DAOs, and the Metaverse.”
The term Web3 is something that I only heard about this year, although we’ve talked about it on the show in numerous episodes when we discussed elements of the Blockchain, cryptocurrency, DeFi, NFTs, and other topics along those lines.
Web 1, 2, and 3
Let’s start with what is Web 1.0? Web 1.0 was really from 1991 to 2004. When we think of Web 1.0, we think of email, static websites, domain names, DNS, IP addresses, online purchases, search functionality. I recall as a newly minted MBA, working for AT&T Capital around 1994, when Netscape came out, a browser. Prior to that all my internet experience was just Usenet groups. There was no email that we used in the corporate setting. It was very paper-focused. But then I started hearing about the World Wide Web. About that time, I joined our investment advisory firm. We started using email; first, just among ourselves, and eventually with our clients.
The internet bubble occurred. Everybody had their favorite dot-com. I opened an account at eBay, Amazon, PayPal. I had the foresight to buy the domain names for myself, jdstein.com, jdavidstein.com. The domain names for all of our children. LaPriel’s domain name. I didn’t have the foresight to buy one-word domain names. I wasn’t that much of an early adopter, but I knew there was something here, and something going on.
And then by 2004, I built my own website to sell our house in Idaho, and a family from South America that was coming back to the States, found it, found the website, saw the pictures of the house, and they bought it. It was very much still though paper and phone-heavy.
I recall flying to client meetings, occasionally with the founder of our firm, and he would have his briefcase just stuffed with paper, and he would spend the entire flight reading documents, newspapers, articles that he’d cut out and he would just stuff them in the seatback pocket, because by the end of the flight he had this huge pile of papers in the seatback. We’d arrive at the airport and then he’d go straight to the payphone and then check his voicemail. Returned calls for much longer than I had to, given I was just very much a junior associate at the time.
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